The growth and employment data released this week reinforce the vision of a resilient economy in the face of monetary and geopolitical adversities, but also point to short-term weakening factors. Private consumption is consolidated as the most dynamic component, due to the good performance of the labor market and the agreements to recover the purchasing power of salaries. It is also likely that families have sustained their spending by drawing on the surplus of accumulated savings. Another factor is fiscal policy: public consumption continues to expand at a faster rate than the economy, standing almost 10% above the pre-pandemic level.
Investment, however, falters. And the accelerated tightening of credit confirmed by the ECB’s latest bank loan survey anticipates a scenario of weakness for the coming months, even incorporating the stimulus of Next Generation funds. It is surprising that, despite such an injection of European transfers, investment has not yet reached the pre-pandemic level. For now, companies remain cautious, choosing to reduce debt or accumulate liquidity. In September its bank deposits increased by 10.6 billion euros.
Furthermore, the foreign sector, a powerful engine of recovery last year, suffers from the stagnation of the European economy, the main source of income from abroad. The problem lies in lower external demand, and not in a loss of competitiveness. Proof of this is that Spanish companies are gaining ground not only in international markets, but also in the domestic market: imports are contracting, the opposite of what usually happens in a context of increased consumption. In any case, exports of non-tourist services continue to grow at a high rate – standing no less than 22% above the pre-pandemic level – but without compensating for the fall in exports of goods. Tourism is holding up, although its full normalization cools prospects for the next season.
All of this raises the question of the sustainability of the current growth pattern. The tailwinds that have boosted household consumption are moderating, in step with the slower rate of job creation. Membership is advancing, in part due to the incorporation of foreign labor (more than half a million people since the beginning of 2022, almost half of the total employment created). But the exceptional figures of the spring are left behind. Salaries are also slowing down: compensation per employee increased by 4.2% in the third quarter, almost two points less than in the first; This slowdown, together with the resilience of the CPI, leaves little room to gain purchasing capacity in the last part of the year.
As for public consumption, its future trajectory should reflect the need to contain budgetary imbalances, a necessary objective to assume the sharp rise in State financing costs that is anticipated for the next year.
Broadening the view, the productive apparatus emerges from the succession of crises with a favorable competitive position, strengthened by the powerful surplus of foreign labor. This is an asset to take advantage of a hypothetical change in trend in the European economy, as foreseen by the IMF for the next two years. Much will depend, however, on the future of the conflicts in Ukraine and the Middle East and the impact of the ten interest rate increases, the effects of which have only partially filtered through to the economy. In any case, European reactivation, together with a greater driving effect of European funds, would also help unblock investment in company equipment and productivity, the main missing piece in the puzzle of the Spanish economy. Geopolitics and the unknowns surrounding business investment condition growth and the ability to improve levels of social well-being.
Hours worked
Occupancy increased by 0.8% in the third quarter according to the EPA, a rate notably higher than that of the economy (0.3%). This difference is largely explained by the decrease in the average number of hours worked per employee, a trend registered since the pandemic. So far this year, each employed person has worked an average of 32 hours, compared to 32.2 during the same period last year and 33.4 in 2019. This evolution is mainly due to the decrease in the number of effective hours worked by people employed full time.
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